Video games developer Eutechnyx shows the value of self-help

'We'll see some more good companies go to the wall purely as a result of chronic bank support, which in turn will limit our ability to climb out of this recession quickly,' explains Eutechnyx founder Darren Jobling

Ferrari Challenge Deluxe is a recent game from the Eutechnyx stable. Photograph: Eutechnyx Games

Gateshead may be best known to many Brits as the site of one of the country's largest shopping malls, the MetroCentre, but to millions of computer game players across the world it plays host to the creator of some of the most challenging driving games available.

Eutechnyx is one of the myriad of companies that have sprung up across the country over the past two decades and made the UK the world's third most successful developer of video games. It started life in the early 1980s in the bedroom of Brian Jobling. At the age of 14 he started creating games for the new range of personal computers that were appearing, such as the ZX Spectrum and Commodore 64. Three years later, in 1987, he had made enough cash selling tapes of games that he could start his own company, Zeppelin Games.

"Like a lot of early game developers, we were funded by family and 0% credit cards," remembers Brian's brother Darren, now Eutechnyx's director of business development. "During the 22 years we have been in business, it has always been difficult to get money from the UK's banks - all the funds we needed to establish ourselves as the world's leading independent driving game developer have come from selling our products to publishers around the world."

The company employs nearly 200 people with studios in Gateshead, Hong Kong, Chengdu and the US but it has been a bumpy road. In 1993 Zeppelin was snapped up by American outfit Merit Studios but a few years later the directors bought the business, by then called Eutechnyx, back again.

Developing games is no easy task. While the first game produced by Zeppelin cost about $5,000 (£2,996) to make, budgets now run into the millions. Getting that cash together can be a struggle. Jobling explained that historically the company has had "no luck" with British venture capital firms, not least because the industry has an image problem with the City. Several of the first wave of British developers rushed onto the stock market - most spectacularly Tomb Raider creator Eidos - where they performed poorly for investors.

No money in the UK

The recession, which has lead to an increase in the cost of borrowing the sorts of amounts needed to develop a world-beating game, has also hit the industry hard. "Our experience is that there is no money in the UK market," Jobling said. "The banks' priority is getting their own balance sheets in order first. Fundamentally, the banks are looking to reduce their own exposure rather than increase it. We'll see some more good companies go to the wall purely as a result of chronic bank support, which in turn will limit our ability to climb out of this recession quickly."

The situation is made worse by the fact that some other countries - most notably Canada and France - are deliberately skewing their tax regimes in order to lure games developers from the UK. The UK's video games industry, which contributes more than £1bn to the country's GDP, has been created with little government help and has often been ignored by the rest of the media world, which is obsessed with television, newspapers and a film industry that has enjoyed years of tax breaks. In the interim report from the government's flagship Digital Britain process the sector was missed out completely, despite the fact that unlike many other parts of the "creative industries", the video games sector has companies across the country: from Realtime Worlds in Dundee and Rockstar North in Edinburgh, to Frontier in Cambridge and Rebellion Developments in Oxford.

The final Digital Britain report, in June, proposed a "cultural tax break" for video games developers, essentially asking the industry to play up its regional roots in order to persuade a cash-strapped Treasury to give it a helping hand. Whether that proposal will make it into November's pre-budget report will depend on the strength of the government's commitment to helping create the next generation of British businesses.

Jobling explained that Eutechnyx has made use of the government's research and development tax credit scheme but pointed out: "You have to remember that if Eutechnyx was based in Canada 37.5% of all of our salary costs would be paid by the Canadian government - this creates a very unfair playing field."

"Eutechnyx would be better financed, higher valued and closer to our customers if we were based in Silicon Valley. However, nothing replaces the quality of UK development talent."